Penalizing banks and compensating the customers for the delay or deficiency in service delivery standards should form the cornerstone of all banking regulations and create an environment of trust and confidence between the banks and the banking public
It is a common practice among banks to levy a penalty on those customers, whether depositors or borrowers, who do not comply with the terms and conditions stipulated. The banks lay down a series of conditions when you open an account or when you borrow from a bank and if you fail to honour these conditions, you are slapped with penalties, which are rising every year without rhyme or reason.
For instance, as a depositor, if you do not maintain a minimum balance in your account you are charged a penalty, if you exceed certain number of transactions in your account in a month you are levied a penalty, if you cross certain number of cheques drawn in a month you pay a penalty, to mention a few. Similarly, as a borrower, if you delay payment of an instalment even by a day on your loan account you are charged a penalty, if you do not pay the quarterly interest on your loan account, you are levied a penalty and this goes on and on many times even without any notice to you.
Surprisingly, Reserve Bank of India (RBI), as a banking regulator, never questioned this practice followed by banks. The banking public too meekly submitted to these conditions without asking as to why these conditions are a one-way street applicable only against them and nothing against the banks for their failure to comply with their part of the obligations towards banks’ customers.
Right to Service Acts passed by state governments:As is well known, a number of state governments in our country have enacted laws which are called as “Right to Service Acts”to ensure that delivery of service by government servants is provided in a time-bound manner. These enactments provide for compensation to the public if they fail to get their requirements completed within the timeframe stipulated by the government.
Even the central government is in the process of enacting a legislation to ensure that all central government services are provided to the public within the stipulated timeframe, failing which compensation will be granted to the applicant till his/her request is complied with. Only time alone will tell whether this will have a desired effect on the life of ordinary citizens and the public will be saved of the harassment faced by them today while dealing with government departments. But certainly it calls for a similar system to be introduced in all public utilities, and banks being the institutions that have largest impact on the life of people of this country, should be the forerunners in introducing these fair dealing practices for the benefit of banking public.
RBI is within its powers to stipulate penalties for deficiency in service:A few years back, the RBI had come out with guidelines to all the banks to stipulate time norms for many of the services rendered by banks and display these time norms in the branches for the information of the public. Though most of the public sector banks did come out with time norms for services like encashment of cheques and issue of drafts and displayed them in their notice boards, these norms were never seriously followed.They remained only on paper, as there was no penalty imposed on banks for non-adherence to these time norms.
It is possible for the RBI under its existing powers to stipulate penalties for non-delivery of stipulated services by banks and provide for compensation to the banking public for failure of any bank to honour its commitments to its customers. In fact RBI has already made a beginning by levying a penalty of Rs100 per day of delay, if the bank fails to refund within seven days, the amount that has not been dispensed by its ATM but debited to the customer’s account. This in fact has served to make the banks own up the responsibility for proper functioning of their ATMs, without passing the back to the supplier of the machines.
Introduce penalties and compensation which are two sides of the same coin:There are a number of instances where customers do not get satisfactory service from the banks.Majority of customers silently suffer on account of indifference of banks even to provide simple basic services like disbursing the pension on the stipulated dates, paying interest on fixed deposits on due dates, etc. The RBI itself has confirmed this situation prevailing in our banking industry on several occasions, but has not forced these tenets of equity, diligence and fair play in their dealings with customers, leaving a bitter feeling of helplessness in the minds of the general public.
It is, therefore, necessary for the RBI to identify all types of services rendered by banks to their customers and stipulate time norms for delivery of all such services, which should be mandatorily honoured by banks without any excuse. If any bank does not comply with these time norms for whatever reasons, they should be made to pay a minimum compensation to the customers at a rate, which will serve as a deterrent for repetition of such instances in future. To ensure that this system of compensating the customers is followed both in letter and spirit, the bank should automatically credit the compensation payable to the customers’ account without asking for it.
Protect the rights to approach banking ombudsman in case of dissatisfaction:However, it should be ensured by the RBI that this system of giving compensation to the customer at the rates stipulated by the central bank should not take away the rights of the banks’ customers to approach the banking Ombudsman for a higher compensation, if he or she feels that the compensation offered by the bank is not commensurate with the agony and suffering undergone by the customer due to the deficiency in service provided by the bank. For instance, if a cheque is dishonoured by a bank for no valid reason, the customer not only loses his face, but it affects his reputation in society, which cannot be evaluated in terms of money. As per the banking practice, the smaller the amount of the cheque, bigger the compensation payable, as it hurts one’s ego most, if a cheque for a relatively small amount is wrongly returned by the bank for the reason of insufficient funds, when the account had adequate funds to meet the cheque. Therefore, the customer should have a right to approach the Ombudsman, if he/she is not satisfied with the compensation prescribed by RBI and paid by the bank. In actual practice by introducing this new system of empowering depositors, it may bring down the complaints lodged with the banking ombudsman considerably, and help in improving the banker customer relationships to a large extent.
Emulate international practice of compensating bank customers:Here is an example of what happened in the UK recently and how banks volunteered to compensate the customers, who had faced problems with their accounts.
BBC reported that On 6 March 2013, customers of Royal Bank group covering Royal Bank of Scotland (RBS),NatWest Bank and Ulster Bank were unable to access their accounts and could not even use their cards to withdraw money from ATMs for a couple of hours. The banking group, which is 80% owned by the UK government, blamed a “hardware fault” for causing its systems to crash, but promptly apologized and promised to compensate customers who experienced problems because of the disruption, which lasted for a couple of hours. The RBS banking group had to honour claims from millions of customers who were unable to withdraw cash, pay for goods and services or carry out telephone or online banking for no fault of theirs. Here is an example of how one customer got compensated by the bank even for a little embarrassment faced by him at a restaurant.
As per the BBC report, a customer of the bank had to get someone else to pay for his dinner that evening, as his card was not accepted due to a technical glitch in the bank. The bank instantly offered him 30 pounds compensation, but when he declined, he was offered 70 pounds (equivalent of about Rs6,000) for the embarrassment caused and it was paid into his account straight away.
In June 2012, 16 million customers of RBS, NatWest and Ulster Bank had difficulties with cash withdrawals, phone and online banking and debit cards, which the bank had blamed on a software glitch. It was reported by BBC that the disruption was one reason why Stephen Hester, CEO of RBS declined to accept part of the annual bonus. In fact, the bank paid out over 125 million sterling pounds to customers as compensation last year, and branch opening hours were extended to help customers who experienced difficulties. Such is the sensitivity to customers’ inconvenience in countries like the UK, which is worth emulating by banks in our country.
RBI should take a cue from this and act promptly:It is very common for banks in India to put the blame on computers for any disruption in their operations and do not pay any heed to customer complaints when computers fail to deliver.After all if computers fail, either the hardware supplier or the software vender should be held accountable, but so far as banks’ customers are concerned, it is the bankthat should be held responsible for compensating the customers who have suffered in the bargain for no fault of theirs. As seen in the U.K example, banks take fullresponsibility for computer glitches as well and had shelled out substantial compensation to customers even when the disruption was caused by hardware and software problems. While banks in the UK have volunteered to compensate the customers on account of public pressure and threat of loss of business, we cannot expect banks in India to do the same here, as they are totally thick-skinned to the point of being indifferent to public opinion and insensitive to customer inconvenience.
It is, therefore, necessary for the banking regulator, the RBI, to step in and introduce the system of penalties and compensation for deficiency in all banking services which should be benchmarked against best practices required to be followed by every bank in the country. Penalizing banks and compensating the customers for the delay or deficiency in service delivery standards should form the cornerstone of all banking regulations to give a new orientation to customer service practices and create an environment of trust and confidence between the banks and the banking public.
Will the RBI take a cue from the above and empower the depositors and bank customers to take banking service to a new level of customer satisfaction never experienced before in our country?
Read the first part here: Make ‘basic’ banking services free!
(The author is a banking analyst and writes for Moneylife under the pen-name of Gurpur.)
In the first part of this two-part series we identify certain basic services rendered by every bank, and ensure that these services are offered free of all charges across the board, so that every customer is treated fairly, equitably and in a non-discriminate manner